Nokia and Microsoft have had discussions about possible WP7-based Nokia device

In his weekly op-ed, mobile godhead Eldar Murtazin announced that Nokia has been in talks with Microsoft to possibly develop a device based on the Windows Phone 7 operating system.

"This two way dialogue was initiated by new Nokia management," Murtazin writes. "It's a desperate measure for both companies. This is their only solution to stop an all conquering Android."

Nokia's tribulations have been well-documented here on DT [1] [2] [3]. And while Nokia has not commented on the alleged discussions with Microsoft, it seems particularly plausible considering Nokia's new CEO is a former Microsoft exec.

A Windows Phone-based device must sound even more enticing to Nokia, amid reports that the Windows Phone marketplace is ramping up faster than Android did after first launching, and is holding its own against even the Apple store.

"The Windows Phone 7 Marketplace reaching 4,000 apps two months after launch has to be one of the most rapid ramp-ups in recent times, reaching this milestone faster than Android, which took from October 2008 to March 2009 to reach about the same level," Al Hilwa, an analyst with research firm IDC, wrote in a research note.

"We can say that for a company that just a few months ago was an also-ran in mobile, having 10 smartphones released in 30 countries is not a trivial achievement," Hilwa wrote. "I would not be surprised if Microsoft had the third largest app portfolio in the industry by the middle of next year."

With so many reviews and news reports writing off Windows Phone because of a lack of apps, the analysis is encouraging for Microsoft. And even if sales U.S. sales figures can't match that of the iPhone, international reports say WP7 is selling well in Europe and Asia, according to EWeek. But Microsoft is also in a position that allows itself to lose money on a product initially, if adoption is slow.

"No one expected WP7 to take the market by a storm, but the role of the first release was to [put] Microsoft in the game. To be clear this is a long term battle that will be pivotal for Microsoft’s long-term relevance," Hilwa wrote.

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quote: When they're the underdog in a market, they come out aggressive and willing to lose billions to create marketshare. They did that with the Xbox and Xbox 360 and now their console system is leading in sales and kicking ass in online subscriptions. The same thing will happen with Windows mobile, they neglected it for too long and gave Apple too big of a head start. Someone at MS finally got wise to that and aren't going to let Apple or Google get away with it. This is all good news for the consumer. Personally, I'm interested in a mature WP7/WP8 platform much more than Apple's IOS or Android. Reasons being that MS has it's hands in everything software that's worth having (Xbox live, MS Office, growing app store) along with a unified hardware platform (no fragmentation like Android). Plus MS won't be so hard assed about controlling Windows mobile as much as Apple.

The key problem with this type of comment or analysis is that it make a lot of fallacious assumptions, assumptions based upon the historically novel and unique experience of Windows/Office. It leads to the constant confusion of large market share with good business model. With the Windows/Office duo Microsoft was able to establish a powerful monopoly and to thus charge monopoly prices and thus make huge monopoly rates of profit. For a long time. The Windows/Office monopoly is the only part of the Microsoft business empire that is making large profits, everything else Microsoft does and sells makes peanuts in comparison. Its Windows/Office that keeps Microsoft alive. But times change and no monopoly lasts forever. Microsoft has made big efforts to defend and extend the Windows/Office monopoly but mostly this has failed, crippled by Microsoft's very insistence that everything should link back to and extend Windows.

Now the sands of technology have shifted. The old desktop paradigm of computing is fading in importance and the focus, the mojo and most importantly the money is shifting to the world of mobile and consumer devices and here Microsoft runs into problems. The Xbox is a good example of the sorts of problems that Microsoft has. It has invested billions, persevered for years, innovated and bashed away at the market to the point where it is a very big, perhaps the biggest, contender in the console market. But for what? Microsoft cannot achieve a monopoly of consoles, it never will, and without the monopoly the result is very low rates of returns. In fact in a normal business (i.e. one without a monopoly revenue stream to fall back on) the Xbox investment by Microsoft would be considered a catastrophe. Who spends billions to make millions? Microsoft would have made more money taking the money spent over the years on Xbox and just putting it into a high interest bearing account.

Now Microsoft will spend huge amounts of money and effort to win a chunk of the phone OS market. It may even buy Nokia. But it will not achieve a monopoly of the phone OS market, it will never make monopoly rates of return in the phone OS market and so it will fail yet again to find a replacement for its old ageing monopoly revenue streams.

At some, possibly quite soon, the old Microsoft monopolies will come under strong price pressure. They already are to some extent. And when that price pressure bites Microsoft will find its old revenue streams shrinking and will not have any comparable revenue streams to replace them with.

The finance boys knows this. Hence Microsoft's share price stagnation and decline. Ballmer also knows this, hence the desperate multiple initiatives to find the next big thing, except Microsoft hasn't beaten anyone to the market for a long, long time.

Microsoft could take half the phone market and it would still not stop the long term erosion of it's business model. Personally I think Microsoft's old monopoly products Windows/Office will hit an inflection point sooner rather than latter and the decline could be shockingly sudden. Time will tell.

He is just doing what he always does. An article that says MS did something good. He comes in and here says how there entire company rides on Windows and Office, which ok so what if it does. Windows and Office are not going any where. The business world is almost entirely Windows and Office and you you say differently your an idiot. He just spews all this crap so he can bash on MS.

Tony, I'll give you credit for what you've posted makes sense, and you seem to know a bit about what your talking about... But in everything you posted, you danced around one topic that seems to have slipped through your facts. While it is true that their office/os monopoly is slipping, and they will never have a monopoly in the console, or mobile phone market, the point is they don't need to!! There is this thing called diversification , and that is what MS is doing here!

They know full well that office can't bankroll the company for ever. And while dumping billions to make millions might not make sense in the short term, if you scale it out to long term, it makes perfect sense. They don't need to be the monopoly in the console of mobile phone market, they just need to be established and be making money in that market. And I'll bet you money that is their plan. Would they like to be a monopoly... sure, what company doesn't? But they don't need to be the monopoly to profit.

In fact their business model here is already showing. You got a Movie you buy on your computer, you then stream it to your TV via XBox, later you are on the road and you finish watching it on your phone. (Reread and replace Movie with Game, Music, etc) Granted they aren't the first to the market to do this, the point is they don't need to be the first. People are already familiar with how to use windows and it's GUI. You couple that with several devices that easily extend that familiar functionality and easily connect and share data with each other... (can we say cloud) and you've got a multi-billion dollar business model that is poised to be very successful.

But the whole story here is that even if they don't get a consumer to buy all their devices that connect together, they still have diversified their business model so their money is coming in from multiple sources, rather than just the Office cow. While they may not be making billions, they are still making millions, and those millions will just keep adding up as the years go on.

quote: Tony, I'll give you credit for what you've posted makes sense, and you seem to know a bit about what your talking about... But in everything you posted, you danced around one topic that seems to have slipped through your facts. While it is true that their office/os monopoly is slipping, and they will never have a monopoly in the console, or mobile phone market, the point is they don't need to!! There is this thing called diversification , and that is what MS is doing here!

It's clear that Microsoft has tried very hard to diversify for over fifteen years. Initially I think they thought it would be fairly easy to use their Windows/Office monopoly to leverage new and lucrative business lines. In fact it turned out to be very, very much harder than they had anticipated. None - and I do mean none - of Microsoft's attempts at diversifying have made much money. Many have lost a lot of money.

Microsoft is used to living with the huge monopoly revenues from Windows/Office and this means they can throw money around and at one project after another. But throwing money around will not guarantee a success in the new world of mobile and consumer devices and services (ask Sony). Currently their consumer division loses money. The Xbox is a crappy business, not a crappy product, I have never used one so I have no idea how good Xbox is or isn't, but it's a crappy business. Razor thin margins even when it's does actually make money.

Take away Windows/Office and the company would go under.

So can Microsoft find a new, large and profitable business to replace its ageing core products? It's a hard environment for them to do so. They face one competitor in Google which can offer essentially free alternatives to Microsoft's offerings. With free Android in play in exactly the same market as Microsoft's WP7 how much can Microsoft actually charge for WP7?

And then there is Apple which can seemingly outflank Microsoft in one market after another. Why?

Personally I think that Microsoft probably needs a near death experience to really retool the company. Microsoft has never had a near death experience but Steve Jobs has had a near death experience three times (and I am not talking about his cancer). First was when Next, his venture after being ejected from Apple, nearly failed and had to be drastically reshaped as a software company after the failure of it's hardware business. Second was Pixar which almost didn't make it, Jobs had nearly run out of money keeping it going until the success of Toy Story saved it. Third was of course Apple where although Jobs was not involved during its years of decline he sure as hell was paying close attention. And when he came back he found that near death had transformed the companies internal and corporate culture so it was ripe and ready to be remade. That's what nearly dying does.

I think the sooner that Microsoft starts to feel the pinch in its core Windows/Office business the better it will be for the company long term. Until the old cash cow falters it will keep on running itself in the same tired old way. Personally long term I think Microsoft should not try to be a consumer business. It should concentrate on its enterprise products. If it takes that route it may end being a smaller and perhaps less profitable company but it could be secure long term strategy and it wouldn't flounder around so much in such an embarrassing way in public.

Microsoft does not have as fragmented a business model as you suggest. Their strategy involves extending the Windows, Xbox Live, and Zune brands across platforms and into the cloud, similar to what Apple (and perhaps even Google) are doing. Microsoft is in a much stronger position, however.

Also, Windows is in no way threatened. Mac OS will never extend beyond its niche for trendsters, computing novices, and media production professionals. Linux is for nerds with way too much time on their hands, and will never offer the polish, reliability, functionality, ease of use, and compatibility of Windows. Chrome OS is a niche product for netbooks that offers nothing to the all-important business world.

quote: Microsoft does not have as fragmented a business model as you suggest. Their strategy involves extending the Windows, Xbox Live, and Zune brands across platforms and into the cloud, similar to what Apple (and perhaps even Google) are doing. Microsoft is in a much stronger position, however.

Also, Windows is in no way threatened. Mac OS will never extend beyond its niche for trendsters, computing novices, and media production professionals. Linux is for nerds with way too much time on their hands, and will never offer the polish, reliability, functionality, ease of use, and compatibility of Windows. Chrome OS is a niche product for netbooks that offers nothing to the all-important business world.

We could argue about this endlessly.

Suffice to say I shall keep my Apple shares and will not be purchasing any Microsoft shares ;)